Today's Federal Reserve decision is momentous for a number of
reasons.

Foremost among them: the Fed's monetary policymaking body, the
FOMC, is widely expected to announce the first reduction in the
pace of monthly bond purchases under the open-ended quantitative
easing (QE) program it introduced exactly a year ago.

In a broader sense, this first "tapering" of QE represents the
beginning of a shift away from the easy-money policies that have
dominated the monetary policy landscape over the last five years
coming out of the financial crisis and recession.

There is some debate over how big of a reduction in bond
purchases the Fed will make, but the consensus is that the
central bank will elect to taper by $10 billion, bringing total
monthly purchases down to $75 billion.

If the taper is bigger or smaller, markets could move. But there
are a lot of other outcomes from today's announcement that could
move markets as well, as Citi currency strategist Steven
Englander reminds clients in a note this morning (emphasis
added):

Today’s FOMC carries volatility risk, not because the
policy decision is likely to signal a dramatic surprise but
because there are an unusual number of dimensions along which
FOMC can surprise, and whose implications will be
debated. This includes timing and magnitude of tapering,
2014-15 forecast changes, 2016 first forecast, shift in the
threshold for unemployment, a potential inflation threshold,
among others. So the order of the headlines may determine
extreme volatility until markets settle down.

We continue to think that economic data trump tapering and that
the tapering timetable trumps forward guidance. It is most likely
that a month from now the economic data flow will be viewed as
much more significant than the forward guidance. This is
eminently illustrated by the GBP and gilt reaction to UK forward
guidance.

For the record, it looks as if expectations have converged to 1)
September tapering USD10-15bn; 2) end by middle of 2014; 3) some
downward revision to 2013-15 forecasts, but 2016 not to far from
full employment; 4) a low trajectory of policy rate increase
after mid 2015 (although they may view the projected start as a
forward guidance tool); 5) some inflation threshold; 6) downward
revision to the unemployment rate threshold possible but up in
the air. We view 1) and 2) as more important than 3)-6) in
determining how markets trade. If they hit expectations on 1) and
2), do not surprise too much on 3) or 4), but do nothing on 5) or
6) – that would be viewed as slightly hawkish.

In FX the stress point is still the weak end of EM, followed by
AUD and NZD in G10, followed by JPY. The policy debate is about
the pace and size of liquidity unwinding, and vulnerable
currencies will bask in a dovish glow, and get hammered on
perceived Fed hawkishness.

Société Générale currency strategist Sebastien Galy is on a
similar wavelength, pointing out that algos will have to digest
all of this news as well.

"On the Fed decision, algos will not have a good day and prices
likely widen quite a bit in anticipation of this high frequency
mess," says Galy. "Text-reading algos will have to deal with 1.
Decision on [Treasuries] 2. Decision on [mortgage-backed
securities] 3. New Fed projection 2016 4. A 'Tone' that is a
sequence of text that differs from the previous release. A few
second or minutes into what will likely be a decision as
expected, the real positioning will start. Consensus is for
[Treasuries] tapering, a weaker growth profile, though our
economists believe a more bullish 2016 Fed view."